Pakistan’s public debt remained above the legally mandated limit in the last fiscal year, with total liabilities reaching 67.5% of GDP—well beyond the 56.75% threshold set under the Fiscal Responsibility and Debt Limitation (FRDL) Act. The Debt Policy Statement 2025, released by the Ministry of Finance, attributed the hike in debt to high-interest costs, which offset gains from exchange rate stability and expenditure controls.
Public debt increased by 13% to Rs71.2 trillion by June 2024, comprising Rs47.2 trillion in domestic debt and Rs24.1 trillion in external liabilities. While inflation-led economic expansion lowered the debt-to-GDP ratio by 7%, domestic borrowing surged, making up 66% of total public debt.
The report highlighted that successive governments have repeatedly failed to meet debt reduction targets, often amending the FRDL Act to accommodate rising obligations.
The finance ministry noted that interest payments reached Rs8.2 trillion in FY2024, marking a 43% increase from the previous year due to high policy rates, which peaked at 22%. The burden of short-term borrowing kept the country reliant on commercial banks, as the Average Time to Maturity (ATM) of domestic debt remained at 2 years and 8 months.
Meanwhile, the government’s inability to tap international bond markets, partly due to poor credit ratings, led to a decline in external borrowing.
The World Bank’s Debt Heat Map also flagged concerns over Pakistan’s debt transparency, citing delays in publishing key reports and a lack of disclosure on public-private partnership-related guarantees.
In response, the finance ministry stated that reporting delays were due to staffing issues but assured that efforts were underway to improve debt data integration across government departments.
The government plans to diversify its borrowing strategies, including the issuance of Green Sukuk, sustainability-linked bonds, and Panda bonds in Chinese markets. Debt-for-nature and debt-for-climate swaps are also under consideration to manage liabilities while addressing environmental concerns.
The finance ministry aims to pursue buyback and exchange policies based on secondary market conditions, signaling a more proactive debt management approach.
